LAUSR

Abstract With a comprehensive dataset covering 148 countries over 1995–2015, this study investigates the relationship between competition and efficiency in the banking industry. Evidence shows that bank competition is detrimental to cost efficiency, which is at variance with the intuitive “quiet life” hypothesis. Bank regulatory and institutional environment in which banks operate not only influences bank efficiency, but also affects the link between competition and efficiency. Specifically, restrictive regulations on bank activities and stringent capital requirements lead to cost inefficiency, but effective supervisions and information sharing of credit registries are more conducive to bank efficiency. Moreover, this study finds that the adverse impact of competition on efficiency can be mitigated or even reversed by stringent regulations, well-implemented supervisions, and/or effective information sharing mechanisms.